FSA Account vs. HSA Account

Attribute	FSA Account	HSA Account
Tax advantages	Contributions are pre-tax	Contributions are tax-deductible
Eligibility	Available to anyone with a high-deductible health plan	Available only to individuals with a high-deductible health plan
Contribution limits	Maximum annual contribution limit set by IRS	Maximum annual contribution limit set by IRS
Roll-over	Unused funds do not roll over to the next year	Unused funds can roll over to the next year

Overview

Flexible Spending Accounts (FSAs) and Health Savings Accounts (HSAs) are both tax-advantaged accounts that can help individuals save money on healthcare expenses. While they have some similarities, there are also key differences between the two types of accounts.

Eligibility

One of the main differences between FSAs and HSAs is eligibility. FSAs are typically offered by employers as part of their benefits package, and employees can contribute to them through payroll deductions. On the other hand, HSAs are available to individuals who have a high-deductible health plan (HDHP). This means that not everyone is eligible to open an HSA, whereas FSAs are more widely accessible.

Contribution Limits

Another key difference between FSAs and HSAs is the contribution limits. For FSAs, the IRS sets a maximum contribution limit each year, which is currently $2,750 for 2021. This means that individuals can contribute up to this amount to their FSA each year. In contrast, HSAs have higher contribution limits, with a maximum of $3,600 for individuals and $7,200 for families in 2021. Additionally, individuals over the age of 55 can make catch-up contributions to their HSA.

Roll-Over

One advantage of HSAs over FSAs is the ability to roll over funds from year to year. This means that any money left in an HSA at the end of the year can be carried over to the next year, allowing individuals to build up a significant balance over time. On the other hand, FSAs have a "use it or lose it" rule, which means that any funds left in the account at the end of the year are forfeited. Some employers may offer a grace period or a carryover option for FSAs, but this is not guaranteed.

Investment Options

HSAs also offer more investment options compared to FSAs. With an HSA, individuals can invest their funds in various options such as mutual funds, stocks, and bonds, allowing them to potentially grow their savings over time. FSAs, on the other hand, do not offer investment options and the funds are typically held in a low-interest savings account. This means that HSAs have the potential for higher returns compared to FSAs.

Withdrawals

When it comes to withdrawals, both FSAs and HSAs allow individuals to use the funds for qualified medical expenses. This includes a wide range of expenses such as doctor's visits, prescription medications, and medical supplies. However, one key difference is that HSAs also allow individuals to use the funds for non-medical expenses after the age of 65, although these withdrawals are subject to income tax.

Portability

Another advantage of HSAs is portability. Since HSAs are owned by the individual, they can take the account with them if they change jobs or retire. This means that individuals can continue to use their HSA funds for medical expenses even if they no longer have a high-deductible health plan. FSAs, on the other hand, are tied to the employer, so individuals may lose access to their funds if they leave their job.

Conclusion

In conclusion, both FSAs and HSAs offer tax advantages and can help individuals save money on healthcare expenses. However, there are key differences between the two types of accounts, including eligibility, contribution limits, roll-over rules, investment options, withdrawals, and portability. Individuals should carefully consider their healthcare needs and financial goals when choosing between an FSA and an HSA.